ACIT, New Delhi V. M/s. Hindustan Tin Works Ltd., Delhi

ITA 119/DEL/2012

• Counselvise Citation: 11920114 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL AGRAWAL
• Assessee Lawyers: SATPAL SINGH
• Keywords: Capital asset; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C: NEW DELHI) BEFORE SHRI S.V.MEHROTRA,ACCOUNTANT MEMBER VS. SHRI I.C. SUDHIR, JUDICIAL MEMBER ITA NO.119/DEL/ 2012 (ASSESSMENT YEAR :2008-09) HINDUSTAN TINS WORKS LTD. VS. DCIT C/O. M.L. PURI & CO., CA (OSDF) CIT-IV 407, NEW DELHI HOUSE, 27, NEW DELHI BARAKHAMBA ROAD NEW DELHI AAACH2597Q (APPELLANT) (RESPONDENT) ITA NO.5154 /DEL/ 2011 (ASSESSMENT YEAR :2008-09) ACIT VS. HINDUSTAN TIN WORKS LTD. CIRCLE- 12(1) 488, BARTON MARKET NEW DELHI SADAR BAZAR NEW DELHI AAACH2597Q (APPELLANT) (RESPONDENT) ASSESSEE BY :SHRI SATPAL SINGH, SR. DR REVENUE BY : SHRI SALIL AGRAWAL & SHRI SHAILESH GUPTA, ADV. ORDER PER I. C. SUDHIR, JUDICIAL MEMBER: ITA NO. 5154/DEL/2011 ITA NOS5 154DEL2011&119/DEL/2012 2 THE ASSESSEE HAS QUESTIONED THE FIRST APPELLATE ORDER ON THE SOLE GROUND THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FA CTS IN UPHOLDING DISALLOWANCE OF RS.19,53,122/- U/S 14A OF THE I.T ACT READ WITH RULE 8D OF THE I.T RULES. 2. IN SUPPORT OF THE GROUND, THE LD. AR REITERATED SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW . HE POINTED OUT THAT THE LD. CIT(A) WHILE UPHOLDING THE DISALLOWANCE IN QUESTION MADE BY THE ASSESSING OFFICER HAS NOT CONSIDERED THE SUBMISSION OF THE AS SESSEE THAT THE FUNDS WHICH WERE INVESTED IN SHARES WERE INTEREST FREE. HE SUB MITTED THAT AS PER THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP I NVESTMENT LTD VS. CIT 347 ITR 272 (DELHI), THE ASSESSING OFFICER WILL HAVE TO SATISFY HIMSELF FIRST WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE AND THEN ONLY HE CAN JUSTIFY THE DISALLOWANCE. HE SUBMITTED THAT THE AO WILL HAVE TO GIVE REASON ALSO FOR DISSATISFACTION IN OBJECTIVE TERMS. THE LD. AR SUBMITTED FURTHER THAT IN THE PRESENT CASE THE ASSESSING OFFICER HAS NOT ASSIGNED ANY REASON FOR DISSATISFACTION WHILE MAKING DISALLOWANCE U/S 14A O F THE I.T ACT READ WITH RULE 8D OF THE I.T RULES. HE SUBMITTED THAT THE ASSESSE E COMPANY OUT OF FUND RECEIVED ON ACCOUNT OF SALE OF ASSETS HAD MADE INVE STMENT IN THE SHARE OF HTW BEVERAGES CAN INDIA PVT. LTD. HE REFERRED COPY OF PROFIT AND LOSS ACCOUNT AND BALANCE-SHEET ALONG WITH AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION MADE AVAILABLE AT PAGE NO-3 OF THE PAPER BOOK ESPECIALLY INTERNAL PAGE NO. 26 OF THE ITA NOS5 154DEL2011&119/DEL/2012 3 ANNUAL REPORT, WHEREIN DETAILS OF INVESTMENT IN SHA RES HAVE BEEN FURNISHED. HE ALSO REFERRED PAGE NO. 23 OF THE SAID ANNUAL REPORT WHEREIN UNDER THE HEAD RESERVE AND SURPLUS AN AMOUNT OF RS.49,86,18,208/- HAS BEEN SHOWN, WHEREAS INVESTMENT (AT COST) AT PAGE NO. 26 OF THE ANNUAL R EPORT IS SHOWN AT RS.3,34,47,710/- IN TOTAL. THE LD. AR SUBMITTED TH AT NO SUCH DISALLOWANCE HAS BEEN MADE IN THE ASSESSMENT YEAR 2007-08. HE SUBMI TTED FURTHER THAT ONLY CURRENT YEARS SHARE INVESTMENT IS TO BE SEEN. REFE RRING PAGE NO. 24 OF THE ANNUAL REPORT WHEREIN SCHEDULE 3 HAS BEEN GIVEN, THE LD. A R SUBMITTED THAT THE BORROWED FUNDS HAS GONE FOR THE PURPOSE OF BUSINESS AND HAS NOT BEEN INVESTED IN SHARES. THE LD. AR CITED FOLLOWING DECISIONS TO SU PPORT ITS CASE ON THE ISSUE; GODREJ & BOYCE MANUFACTURING CO. LTD (2010) 328 ITR 81 BOM. CIT VS. RELIANCE UTILITIES AND POWER LTD (2009) 313 ITR 340 BOM. CIT VS. JINDAL PHOTO LTD. ITA NO. 87/2012, ORDER DA TED 15/2/2012 (DELHI H.C) ITA VS. ARIHANT ADVERTISING PVT. LTD, ITA NO. 2750/ DEL/2011 (A.Y 2007-08, ORDER DATED 21/9/2012) REI AGRO LTD VS. DCIT & ORS ITA NOS. 1331 & 1423/KO L/2011 (A.Y 2008-09 ORDER DATED 19/6/2013) BALRAMPUR CHINI MILLS LTD VS. DCIT, ITA NO. 504/KOL /2011 (A.Y 2008-09, ORDER DATED29/7/2011 J.K. INVESTORS (BOM) LTD VS. ACIT & ORS ITA NOS 785 1 & 7858/MUM/2011 (A.Y 2008-09, ORDER DATED 13/3/2013). G.D MET STEEL (P) LTD. VS. ACIT (2011) 142 TTJ 641 (MUM) PRIYA EXHIBITORS (P) LTD. VS. ACTI (2012) 54 SOT 3 56 DELHI. DCIT VS. ORIENT CRAFTS LTD. ITA NO. 3864/DEL/2009 ( A.Y 2006-07, ORDER DATED 22/12/2010). CIT VS. ASAHI INDIA SAFETY GLASS LTD (2011) 245 CTR 529 (DELHI). 73 ITD 135 (TM) (DELHI). 151 TTR 584 (DELHI). 203 CTR..........................................P& H HIGH COURT. CIT VS. AMWAY INDIA ENTERPRISES 346 ITR 341 (DELHI) ITA NOS5 154DEL2011&119/DEL/2012 4 CIT VS. UTI BANK LTD (2013) 32 TAXMAN.COM 370 (GUJR AT). 3. THE LD. DR ON THE OTHER HAND PLACED RELI ANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 4. HAVING GONE THROUGH THE ARGUMENTS AD VANCED BY THE PARTIES, ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON, WE FIND THAT DECISION OF THE HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF MAXOP INVESTMENT LTD. VS. CIT(SUPRA) SUPPORTS TH E CONTENTION OF THE LD. AR THAT IF THE AO PREFERS TO INVOKE THE PROVISIONS U/S 14A OF THE ACT, HE IS TO RECORD HIS SATISFACTION FIRST IN THIS REGARD ON THE CORREC TNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, IF ANY, ON THE INVE STMENT FOR EARNING THE EXEMPT INCOME. IT HAS BEEN MADE CLEAR IN THE DECISION OF THE HONBLE HIGH COURT THAT SUCH SATISFACTION CANNOT BE A PLAIN SATISFACTION OR A SIMPLE NOTE. IT IS TO BE DONE WITH REGARD TO ACCOUNTS OF THE ASSESSEE. SUB SECTI ON (2) OF SECTION 14A OF THE ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFI CER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY, IF THE ASSESSING OFFICER R ETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FO R THE ASSESSING OFFICER ITA NOS5 154DEL2011&119/DEL/2012 5 ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFF ICER MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, HELD THE HONBLE HIGH COURT. REFERRIN G SUB SECTION (3) TO SECTION 14A OF THE ACT, THE HONBLE HIGH COURT HAS BEEN PLE ASED TO HOLD THAT IT IS NOTHING BUT AN OFF-SHOOT OF SUB SECTION (2) OF SECT ION 14A OF THE ACT AND IT APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WH ERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCUR RED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER, IF S ATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIO NED IN SUB-SECTION (2) OF SECTION 14A OF THE ACT. IT IS ONLY IF THE ASSESSIN G OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH C ASES, THAT THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPEND ITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THE ACT IN ITA NOS5 154DEL2011&119/DEL/2012 6 ACCORDANCE WITH PRESCRIBED METHOD. THE PRESCRIBED METHOD IS THE METHOD STIPULATED IN RULE 8D OF THE RULES. WHILE REJECTIN G THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. IT IS THEREFORE CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD, HELD THE HONBLE HIGH COURT. IN VIEW OF THIS DECISION OF TH E HONBLE DELHI HIGH COURT WHEN WE GO THROUGH THE ASSESSMENT ORDER WHICH HAS B EEN UPHELD BY THE LD. CIT(A), WE FIND THAT THE AO HAS NOT POINTED OUT AS TO WHICH EXPENDITURE IS NOT CORRECT. HE HAS NOT ASSIGNED ANY REASONS WHILE REJ ECTING THE CLAIM OF THE ASSESSEE, WE, THEREFORE, HOLD THAT THE ACTION OF TH E AO IN REJECTING THE CLAIM OF THE ASSESSEE IS IN VIOLATION OF THE RATIO LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (SUPRA). LD. CIT(A) WAS THUS NOT JUSTIFIED IN APPROVING THE ACTION OF THE AO ON THE ISSUE. WE THUS, WHILE SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW, REMAND T HE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN VIEW OF THE RATIO LAI D DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INV ESTMENT LTD VS. CIT (SUPRA), AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE ON THE ISSUE AS TO WHETHER IN EARNING THE EXEMPT INCOME ARISING OUT OF THE INVESTMENTS IN SHARES, ITA NOS5 154DEL2011&119/DEL/2012 7 THE ASSESSEE HAD INCURRED ANY DISALLOWABLE EXPENDIT URE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF I.T RUL ES. THE GROUND IS THUS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT APPEAL PREFERRED BY T HE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 119/DEL/ 2012 1. THE REVENUE HAS QUESTIONED FIRST APPEL LATE ORDER RAISING THE FOLLOWING ISSUES:- 1. WHETHER THE LD. CIT(A) WAS CORRECT ON FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOW ANCE OF RS.6,93,297/- MADE BY THE A.O ON ACCOUNT OF INTEREST ATTRIBUTAB LE TO THE ACQUISITION OF CAPITAL ASSET? 2. WHETHER THE LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE D ISALLOWANCE OF RS.5,60,508/- MADE BY THE A.O ON ACCOUNT OF SOFTWARE DEVELOP MENT EXPENSES. ISSUE NO.1 3. THE RELEVANT FACTS ARE THAT DURING TH E YEAR, THE ASSESSEE HAD PURCHASED MACHINERY FROM THE BORROWED FUNDS. THE AO CAPITALI ZED THE INTEREST EXPENDITURE ON THE GROUND THAT THE MACHINERY SO INSTALLED HAS R ESULTED IN THE EXPANSION OF ITA NOS5 154DEL2011&119/DEL/2012 8 ASSESSEES BUSINESS. THIS ACTION OF THE AO WAS QUE STIONED BEFORE THE LD. CIT(A) WITH THIS CONTENTION OF THE ASSESSEE THAT THE MACHI NERY SO INSTALLED WAS NOT FOR EXPANSION OR EXTENSION RATHER IT WAS INSTALLED AS A BACK UP AND TO ENSURE THAT IN THE EVENT OF ANY BREAK DOWN THERE IS NO LOSS TO REP RODUCTION CAPACITY. BEING SATISFIED WITH THE SUBMISSION OF THE ASSESSEE, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF RS.6,93,297/- MADE OUT OF THE INTER EST PAID. THIS ACTION OF THE LD. CIT(A) HAS BEEN QUESTIONED BEFORE THE TRIBUNAL. 4. IN SUPPORT OF THE GROUND, THE LD. D .R HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LD. AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER. HE ALSO REFERRED PAGE NO. 35 OF T HE ANNUAL REPORT OF THE YEAR UNDER CONSIDERATION. 5. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT AT PAGE NO. 35 OF THE ANNUAL REPORT, IT HAS BEEN MADE CLEAR IN THE NOTES TO THE ANNUAL ACCOUNTS UNDER THE HEADING CAPACITY AND PRODUCTION THAT THERE IS NO INCREASE IN THE INSTALLED CAPACITY. IN ABSENCE OF REBUTTAL OF THIS MATERIAL FACT BY THE REVENUE, WE DO NO FIND REASON TO INTERFERE WITH THE FIRST APPELLATE O RDER IN THIS REGARD. THE SAME IS UPHELD. THE ISSUE IS DECIDED AGAINST THE REVENUE. ISSUE NO.2 6. THE ASSESSEE HAD CLAIMED EXPEND ITURE OF RS.5,60,508/- INCURRED ON PURCHASE AND SOFTWARES INSTALLATIONS SUCH AS MS O FFICE, MEDIA OF MS OFFICE, ITA NOS5 154DEL2011&119/DEL/2012 9 TALLY GOLD, TALLY SILVER ETC AND IN SUPPORT FURNISH ED COPIES OF BILLS. THE AO DID NOT AGREE AND HELD THAT THESE EXPENSES HAVE BEEN IN CURRED TO DEVELOP A CAPITAL ASSET, HENCE IT SHOULD BE CAPITALIZED. BEING SATIS FIED WITH THE SUBMISSION OF THE ASSESSEE THE LD. CIT(A) HAS, HOWEVER, DELETED THE D ISALLOWANCE OF RS.5,60,508/-. THIS ACTION OF THE FIRST APPELLATE AUTHORITY HAS BE EN QUESTIONED BY THE REVENUE. 7. IN SUPPORT OF THE ISSUE THE LD. DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LD. AR ON THE OTHER HAND REI TERATED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BE LOW AND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. 8. HAVING GONE THROUGH THE ORDERS OF T HE AUTHORITIES BELOW AND THE DECISIONS RELIED UPON, WE FIND THAT THERE IS NO DIS PUTE THAT THE CLAIMED EXPENSES WAS INCURRED IN PURCHASING AND INSTALLATION OF SOFT WARES LIKE MS WINDOWS, MS OFFICE ETC. SUCH TYPE OF SOFTWARES ARE USED TO FAC ILITATE THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT TO CONDUCT TH E ASSESSEES BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY AND THUS CANNOT BE T ERMED AS IN THE NATURE OF PROFIT MAKING APPARATUS. IN THIS REGARD, THE LD. CIT(A) H AS TAKEN SUPPORT OF THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE O F RAYCHEM RPG LTD, ITA NO. 1467/2009. THE APPARATUS USED FOR GENERAL ADMI NISTRATION AND ACCOUNTING PURPOSES ETC CANNOT BE TERMED AS CAPITAL ASSETS. W E THUS DO NOT FIND INFIRMITY IN ITA NOS5 154DEL2011&119/DEL/2012 10 THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE ISSUE NO-2 IS THUS DECIDED AGAINST THE REVENUE. 9. IN RESULT APPEAL IS DISMISSED. 10. CONSEQUENTLY, APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND THAT PREFERRED BY THE REVE NUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH /09/2013. SD/- SD/- (S.V.MEHROTRA) (I.C. SUDHIR) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) DATED THE 30 TH DAY OF SEPTEMBER , 2013 R. NAHEED COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DE LHI.